JOHANNESBURG, 18 JUNE 2012. In a bid to boost trading
volumes and increase transparency in the bonds and financial derivatives market,
the JSE today announced that it has simplified and reduced charges on Bond
Futures and Options and Cash Bond transactions. This is in line with the promise
the JSE made when it acquired the Bond Exchange of South Africa (BESA) in 2009
to retain BESA’s fees structure for two years and then to lower those fees where
possible.

“In the spot bond market, the new billing model will reduce
fees by R2.8m based on the previous 12 months’ trade volumes. This would result
in most clients paying less to trade but for those few clients who would incur
higher fees, the JSE has limited their increase to 6% in 2012,” says Warren
Geers, GM: Bonds and Financial Derivatives at the JSE. “Bond future and option
fees are also cut but the Index and Jibar future charges remain unchanged. This
means that for the same volumes traded in 2011, the JSE would be reducing fees
by R800,000 to the market for derivative trades.” In total, across all the
interest rate traded products on the exchange, the JSE will be reducing the fees
by R3.6 million, ensuring the market will benefit from these new savings.

Like the currency derivatives billing model announced two weeks ago, the
new models are volume-based reward programmes and include a new sliding scale of
fees for bond futures and options as well as rebates for market makers. The
Interest Rate Derivatives billing model was implemented on 1 June and the Spot
Bond billing model is to be introduced on 1 July 2012.

Market makers,
who provide the live pricing to the market and are essential to making the
market attractive to both local and international investors, will now receive
higher rebates for bringing trading volumes into the relevant markets.

“This will be the first time that trading fees for interest rate
derivatives products have changed since the inception of Yield-X at the
beginning of 2005. By changing the trading fees of bond futures and options, we
hope to encourage greater transparency by incentivizing market makers to grow
their on-screen trading volume,” says Geers.

Bond futures and options
are currently charged at R7.50 per R1million, with the new fees being reduced by
67% for the larger trades, which will now be R2.50 per R1 million. This will
align the new cash spot bond fees with the new derivative fee structure.

Says Geers: “Bond Futures make up 80% of the Interest Rate Derivatives
contracts traded in 2011, with contract numbers growing by 74% in the first
quarter of 2012 over the comparative period in 2011. But in terms of overall
value traded, at R6.6 trillion in 2011 the value traded on our spot bond market
dwarfs the bond futures market.

For cash bonds and repo transactions,
the fees were very confusing with fixed fees of R13,000 per month, per member
and then the variable costs were unknown to most market participants until the
statement was issued by the JSE at the end of the month. The new fees structure
is very simple and the fees are the same for all market participants, which is
R10,000 per month per member, and a further R1.90 (excl Vat) per R1million
traded. This effectively reduces fixed monthly fees by R36,000 (23%) for each
member. He adds: “The changes to the billing model for the Cash Bond market was
driven by the need to increase transparency by simplifying the model.”

“Importantly, the JSE has implemented a new model which includes a hedge
strategy across spot and derivative markets. All spot bond deals that are hedged
as a result of a derivative trade will incur zero fees, and similarly if the
spot bond is hedged in the derivative market, no fees will be applied to the
derivative trade. The last thing we are trying to achieve is a double cost for
market participants when doing hedge trading.”

A volume-based rebate
structure for spot bond trading has also been introduced which will reward those
members with larger volumes, so the effective rate reduces below the R1.90 per
R1million.

Band 1 Volume Rebate

Value Traded

Rebate

<=

R 25bn

0%

<=

R 50bn

15%

<=

R 150bn

25%

<=

R 200bn

35%

<=

R 250bn

40%

<=

R 300bn

50%

<=

R 400bn

60%

<=

R 500bn

70%

<=

R 750bn

80%

>

R 750bn

80%

“We’re anticipating
more trade in both the bonds and financial derivatives markets because it will
be cheaper to do so and there are more incentives in doing so. With the adoption
of Basel III and the capital constraints it will place on banks – cleared,
margined products such as bond futures should also be increasingly in demand. We
are confident that these adjustments will make us more competitive and attract
more over the counter derivative business onto the exchange,” says Geers.

About JSE
Limited As South Africa’s only full service securities exchange,
the JSE connects buyers and sellers in four different financial markets, namely
equities, equity derivatives, commodity derivatives and interest rate products.
The JSE Ltd offers the investor a truly first world trading environment, with
world class technology, surveillance and settlement in an emerging market
context. It is amongst the top 20 largest equities exchanges in terms of market
capitalisation in the world. In terms of derivatives, the JSE is currently
ranked the 20th largest exchange by the Futures Industry Association (FIA).